Faculty Research

Economic Growth in the Potterian Economy

Thursday, 16 January 2014 18:12

Economic Growth in the Potterian Economy

by Avichai Snir, Daniel Levy

We study the economic structure of the life of Harry Potter and his co-actors as an economic model that governs the social organization of their economic activities. Our goal is to study and understand the internal consistency of the Potterian economic model and explore the relationships between its assumptions and the situation in the real world, as reflected in the Potterian model. To accomplish this, we focus on a textbook version of Solow’s economic growth model. The analysis of the Potterian economy reveals that the Potterian model fits quite well the predictions of the economic growth model. We discuss potential implications of this finding, and explore the link between Potterian economic structure and performance in a broader context by discussing the link between economic institutions and economic outcomes. Read more...

Explicit Evidence of an Implicit Contract

Friday, 11 January 2013 18:31

Explicit Evidence of an Implicit Contract

by Daniel Levy, Andrew T. Young

We offer the first direct evidence of an implicit contract in a goods market. The evidence comes from the market for Coca-Cola. We demonstrate that the Coca-Cola Company left a written evidence of its implicit contract with its consumers—a very explicit form of an implicit contract. The contract promised a 5¢ price and adherence to the “Secret Formula.” Because implicit contracts are unobservable, we adopt a narrative approach. Analyzing a large number of historical documents, we offer evidence of the Company both acknowledging and acting on this implicit contract. We explore quality as a margin of adjustment available to Coca-Cola. The implicit contract included a promise not only of a constant price but also a constant quality (the “real thing”). During a period of over 70 years, we find evidence of only a single case of true quality change. We demonstrate that the perceived costs of breaking the implicit contract were large. Read more...

Heterogeneous Convergence

Friday, 10 February 2012 18:33

Heterogeneous Convergence


by Daniel Levy, Andrew T. Young, Matthew J. Higgins

We use U.S. county-level data to estimate convergence rates for 22 individual states. We find significant heterogeneity. E.g., the California estimate is 19.9 percent and the New York estimate is 3.3 percent. Convergence rates are essentially uncorrelated with income levels. Read more...

An Application of the Growth Diagnostics Framework: The Case of Georgia

Thursday, 19 January 2012 15:30

An Application of the Growth Diagnostics Framework

by Yaroslava Babych, Michael Fuenfzig

This paper applies the Growth Diagnostics framework and attempts to identify the binding constraints to economic growth in Georgia. While many policies potentially promote economic growth in practice only policies that relax the binding constraint do so. In contrast, policies that relax non-binding constraints will by definition do little or nothing to promote economic growth. This study builds on an existing growth diagnostics exercise by the Government of Georgia and the Millennium Challenge Corporation, but comes to different conclusions. Read more...

Almost Surely Convergent Summands of a Random Sum

Sunday, 19 June 2011 15:42

transparent imageby S. Chobanyan, S. Leventalc, V. Mandrekar

Published in: Statistics & Probability Letters, Volume 82, Issue 1, January 2012, Pages 212-216

We find a sufficient condition for a.s. convergence to zero of summands given that a sum of two sequences of random variables a.s. converges to zero. The condition turns out to be weaker than that used in the monograph by Loeve and in a paper by Martikainen. Our result is also used in construction of a counter-example regarding the a.s. convergence of a rearranged series. Read more...

A Measure to compare Matchings in Marriage Markets

Thursday, 19 May 2011 15:59

A Measure to compare Matchings in Marriage Markets

by Florian M. Biermann

In matching markets the number of blocking pairs is often used as a criterion to compare matchings. We argue that this criterion is lacking an economic interpretation: In many circumstances it will neither reflect the expected extent of partner changes, nor will it capture the satisfaction of the players with the matching. As an alternative, we set up two principles which single out a particularly “disruptive” subcollection of blocking pairs. We propose to take the cardinality of that subset as a measure to compare matchings. This cardinality has an economic interpretation: The subset is a justified objection against the given matching according to a bargaining set characterization of the set of stable matchings. We prove multiple properties relevant for a workable measure of comparison. Read more...

Task Assignment with Autonomous and Controlled Agents

Tuesday, 12 April 2011 16:03

Task Assignment with Autonomous and Controlled Agents

by Florian M. Biermann, Victor Naroditsky, Maria Polukarov, Alex Rogers, Nicholas R. Jennings

We analyse assignment problems in which not all agents are controlled by the central planner. The autonomous agents search for vacant tasks guided by their own preference orders defined over subsets of the available tasks. The goal of the central planner is to maximise the total value of the assignment, taking into account the behaviour of the uncontrolled agents. This setting can be found in numerous real-world situations, ranging from organisational economics to "crowdsourcing" and disaster response. We introduce the Disjunctively Constrained Knapsack Game and show that its unique Nash equilibrium reveals the optimal assignment for the controlled agents. This result allows us to find the solution of the problem using mathematical programming techniques. Read more...

Financial Crises and Economic Growth – A Long Run Perspective

Friday, 11 March 2011 16:08

Financial Crises and Economic Growth A Long Run Perspective

by Yaroslava Babych

In the economic literature the costs of financial crises are typically defined as cumulative output losses until the resolution of the crisis. Given this definition, majority of the empirical studies have documented significant economic costs associated with currency, banking and the twin crises. Few studies, however, looked at the long-term effect of various types of crises. In this paper I estimate the effect of currency, banking and twin crises episodes on the probability of initiating the periods of prolonged and significant growth spurs and downturns – the growth take-offs, and the growth collapses. Read more...

Transparency, Appropriability and the Early State

Thursday, 03 February 2011 16:19

Transparency Appropriability and the Early State

by Joram Mayshar, Omer Moav, Zvika Neeman

We propose a general theory that explains the extent of the state and accounts for related institutions as byproducts of the state’s extractive technology. We posit further that this extractive technology is determined by the transparency of the production technology. This theory is applied to examine two principal phases in the evolution of the early state. First, we argue that the common explanation of the emergence of the state as a consequence of the availability of food surplus due to the Neolithic Revolution is flawed, since it ignores Malthusian considerations. In contrast, we suggest that what led to the emergence of the state was a transformation of the tax technology that was induced by the greater transparency of the new farming technology. We then apply our theory to explain key institutional features that distinguished ancient Egypt from ancient Mesopotamia, and, in particular, to explain their different land tenure regimes. Read more...

Dynamic Contracts with Moral Hazard and Adverse Selection

Saturday, 29 January 2011 16:26

Dynamic Contracts with Moral Hazard and Adverse Selection

by Alex Gershkov, Motty Perry

We study a novel dynamic principal—agent setting with moral hazard and adverse selection (persistent as well as repeated). In the model an agent whose skills are his private information faces a finite sequence of tasks, one after the other. Upon arrival of each task the agent learns its level of difficulty and then chooses whether to accept or refuse each task in turn, and how much effort to exert. Although his decision to accept or refuse a task is publicly known, the agent’s effort level is his private information.
We characterize optimal contracts and show that the per-period utility of the agent approaches his per-period utility when his skills are publicly known, as the discount factor and the time horizon increase. Read more...

Remittances in Georgia: Correlates, Economic Impact, and Social Capital Formation

Tuesday, 09 February 2010 16:29

Remittances in Georgia Correlates Economic Impact

by Theodore P. Gerber, Karine Torosyan

Using a new data source, the Georgia on the Move Survey, we examine migrant-level, household-level, and contextual variables associated with the probability that a Georgian household receives remittances.  We use propensity score matching to estimate how remittances affect particular types of household expenditures, savings, labor supply, health, and other measures of well being more precisely than is usually possible. Read more...

The Real Estate Conundrum in the CEE Office Markets: Thinking Too Big?

Tuesday, 12 January 2010 16:32

The Real Estate Risk Premium in Central and Eastern European Cities


by Frederic Laurin, John-John D’Argensio, Thea Goginashvili

In this paper, we investigate the evolution of office market risks and property prices in Central and Eastern European (CEE) cities. We developed a methodology assessing if office property markets have been accurately valuated in CEE cities, using as a benchmark the past evolution of office markets in Western European cities.  Read more...

Pricing Interrelated Goods In Oligopoly

Sunday, 19 October 2008 16:36

Pricing Interrelated Goods in Oligopoly


by Sandro Shelegia

In this paper we propose a two-good model of price competition in an oligopoly where the two goods can be complements or substitutes and each retailer has a captive consumer base a la Burdett and Judd (1983). Read more...

Do Immigrants Affect Labor Market Disparities?

Friday, 12 September 2008 16:40

Do Immigrants Affect Labor Market Disparities Evidence from a Natural Experiment


by Muhammad Asali

This study exploits the natural experiment, provided by the start of the second intifada, to measure the e¤ect of immigration on labor market outcomes of Israeli-Arabs and Jews. Read more...

Inter‐Country Comparisons of Poverty Based on Capability Approach

Wednesday, 10 September 2008 16:44

InterCountry Comparisons of Poverty Based on a Capability Approach


by Muhammad Asali, Sanjay Reddy, Sujata Visaria

We argue that inter-country comparisons of income poverty based on poverty lines uniformly reflecting the costs of the basic requirements of human beings are superior to the existing money-metric approaches. Read more...

Wage Differentials in Israel: Endowments, Occupational Segregation, Discrimination, and Selectivity

Tuesday, 09 September 2008 16:48

Wage Differentials in Israel Endowments Occupational Segregation


by Muhammad Asali

I use a panel of cross sections income data between 1991 and 2003 to measure wage differentials between Israeli-Arab and Jewish workers in Israel. The wage gap discovered is decomposed into components corresponding to human capital, occupational segregation, selectivity, and a residual, which may re‡ect discrimination. Read more...

Trade and Migration: a U‐Shaped Transition in Eastern Europe

Tuesday, 19 August 2008 16:51

Trade and Migration a UShaped Transition in Eastern Europe


by Adolfo Cristobal‐Campoamor

This paper proposes a 2-country 3-region economic geography model that can account for the most salient stylized facts experienced by Eastern European transition economies during the 1990s. Read more...

Skill‐Upgrading and the Saving of Immigrants

Friday, 15 August 2008 16:54

SkillUpgrading and the Saving of Immigrantsby Adolfo Cristobal‐Campoamor

This note derives positive implications about the effect of immigration on labor income and the skill composition of the labor force in receiving economies. The novel mechanism through which immigration affects labor-market outcomes is the availability of new loanable funds for human-capital investment, which results in endogenous skill upgrading. Given their higher training costs in the host economy, immigrants usually do not acquire advanced academic skills, and they accordingly skip the financial costs of education at the college level. As a result, they self-select as net lenders, which reduces the equilibrium interest rates and facilitates the upgrading mostly of new generations of natives. Consequently, the aggregate labor income of natives increases with immigration. Read more...

International convergence and local divergence

Friday, 08 August 2008 16:58

International convergence and local divergence

by Adolfo Cristobal‐Campoamor

Published in: The Annals of Regional Science, Volume 43, Issue 2 (2009), page 527;
Abstract: This paper presents an East-West endogenous-growth model that reproduces recent stylized facts applicable to the trade liberalization process of many developing countries: convergence with the rest of the world, higher internal divergence, increasing spatial concentration of economic activity and higher growth rates. Read more...

Estimating Iceland’s Real Equilibrium Exchange Rate

Thursday, 07 August 2008 17:01

Estimating Icelands Real Equilibrium Exchange Rate


by Robert Tchaidze

Given recent developments in Iceland, this paper evaluates its real exchange rate disequilibrium. It discusses three approaches to estimating the equilibrium values and suggests that the adjustment needed to bring the real exchange rate in line with fundamentals is in the range of 15-25 percent, although timing and manner of this adjustment is unclear. Read more...

The Use and Abuse of Taylor Rules: How Precisely Can We Estimate Them?

Sunday, 03 August 2008 17:06

The Use and Abuse of Taylor Rules How Precisely Can We Estimate Them


by Alina Carare, Robert Tchaidze

This paper draws attention to inconsistencies in estimating simple monetary policy rules and their implications for policy advice. We simulate a macroeconomic model with a backward reaction function similar to Taylor (1993). We estimate different versions of a policy rule, using these simulated data. Read more...

Linguistic Diversity and Redistribution

Tuesday, 29 July 2008 17:20

Linguistic Diversity and Redistribution

by Klaus Desmet, Ignacio Ortuño-Ortín, Shlomo Weber

This paper investigates the effect of linguistic diversity on redistribution in a broad cross-section of countries. We use the notion of "linguistic distances" and show that the commonly used fractionalization index, which ignores linguistic distances, yields insignificant results. However, once distances between languages are accounted for, linguistic diversity has both a statistically and economically significant effect on redistribution. With an average level of redistribution of 9.5% of GDP in our data set, an increase by one standard deviation in the degree of diversity lowers redistribution by approximately one percentage point. We also demonstrate that other measures, such as polarization and peripheral heterogeneity, provide similar results when linguistic distances are incorporated.  Read more...

Stability of Nations and Genetic Diversity

Saturday, 19 July 2008 17:23

Stability of Nations and Genetic Diversity

by Klaus Desmet, Michel Le Breton, Ignacio Ortuño-Ortín, Shlomo Weber

This paper presents a model of nations where culturally heterogeneous agents vote on the optimal level of public spending. Larger nations bene¯t from increasing returns in the provision of public goods, but bear the costs of greater cultural heterogeneity. This tradeo® induces agents' preferences over di®erent geographical con¯gurations, thus determining the likelihood of secession or uni¯cation. We provide empirical support for choosing genetic distances as a proxy of cultural heterogeneity and by using data on genetic distances, we examine the stability of the current map of Europe. We then identify the regions prone to secession and the countries that are more likely to merge. Furthermore, we estimate the welfare gains from European Union membership. Read more...

Trade and Investment Cooperation in East Asia

Thursday, 17 July 2008 17:25

Trade and Investment Cooperation in East Asia

 by Wilfred J. Ethier

This paper attempts to provide a context for the discussion of possible trade and investment cooperation is East Asia. First I describe the present role in the world economy of regional cooperative arrangements. These seem to be concerned primarily with foreign investment, secondarily with national economic-policy credibility, and thirdly with other issues, such as trade and migration. I discuss the changing role of East Asia in the global economy, especially with regard to the role of the multilateral trading system. This changing role raises the issue of possible East Asian cooperation, which I discuss in the light of the present function of regional arrangements. I attempt to identify potential benefits and dangers and the circumstances to which these are sensitive. Read more...

Voting on the Choice of Core Languages in the European Union

Monday, 03 March 2008 17:17

Voting on the Choice of Core Languages in the European Unionby Jan Fidrmuc, Victor Ginsburgh, Shlomo Weber

Published as: Fidrmuc, Jan & Ginsburgh, Victor & Weber, Shlomo, 2009. "Voting on the choice of core languages in the European Union," European Journal of Political Economy 25(1), pages 56-62.

Extensive multilingualism is one of the most important and fundamental principles of the European Union (EU). However, a large number of languages (currently 23) hinders communication and imposes substantial financial and legal costs. On the other hand, the reduction of the number of languages would disenfranchise some or many EU citizens. We use the results of a survey on languages and argue that even though a linguistic reform reducing the number of languages is unlikely to gain sufficient political support today, this may change in the future since young people are more proficient at speaking foreign languages.  Read more...

The Greater the Differences, the Greater the Gains?

Sunday, 02 March 2008 17:28

The Greater the Differences the Greater the Gains


by Wilfred J. Ethier

This paper addresses the fundamental question of whether, in a comparative-advantage context, the gains from trade will be greater when the differences between trading countries are greater. Such a presumption is established. The paper then discusses circumstances that could cause the presumption to fail. Read more...


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